11/16/2011 10:03:36 AM By
We can't understand our economy without better firm-level information systems. That's my essential summary of a new report out today, "Assessing competitiveness: how firm-level data can help
," from Brugel, a European think tank. It's a well-crafted and important report as it makes the case for policymakers why the back-end systems are important investments. As the report shows, when we worry about averages and don't look more specifically at elements of the distributions and how those are changing or could be impacted by certain policies, we hurt our chances of driving competitiveness and economic growth.
In the appendix to the report the authors reference some of the international experiences related to firm-level data sets. I think their summary there was restrained in its criticisms. Indeed, I recently sat through a meeting of leading experts on measuring firm-level innovation and growth at the OECD and was appalled at some of the compromises that were going to have to be made in order to fulfill a European Commission mandate for immediate data. It was clear why the compromises had to be made - national statistical offices have not received the investments they need to develop their infrastructures but more importantly they are only just beginning to realize they need to find ways to encourage firm-level research with their data. However, even with the signs of change I've seen afoot in terms of determination from these offices, they have no legal, political, or practical systems in place to meet this challenge. Indeed, at a time when most countries are undergoing significant public sector cuts, I am worried that the clear needs here will not be met with dollars. I've seen many bodies, including the OECD which I had always thought of as the true champion of international analyses using government data moving towards more instances in which their reports rely more heavily on private data sources instead of government data. While private sources should have their place, they cannot be a replacement for official data. That said, if national statistical offices don't get behind some of the important issues Brugel outlined here, I fear that many nations may become more and more satisfied with substandard official statistics. Indeed, some of the current crises in Europe have been driven by lacking regulatory mechanisms on national statistics (see articles on Greece
11/14/2011 12:03:21 PM By
The OECD has a new version of their timely indicators on entrepreneurship
available today at the national level for 10 countries.
These data show that new business formation continues to operate in most countries at the new levels which were reached after the 2008 recession (Australia stands out for its continued positive performance). These are the most timely indicators available internationally and seem to show anemic start-up rates continue in most countries although the rates haven't worsened for the most part.
This release is timed around the start of Global Entrepreneurship Week
. I would just note that there is much more data available from the OECD on more complicated and nuanced views of entrepreneurship. Most of that data is current through 2007 or 2008.
2/3/2011 7:59:21 AM By
Updated Post 2/3/2011
NFIB is out with an updated report on the state of small business credit as of the end of 2010. This is probably the most important annual report on small business credit that's produced in the United States right now because the Federal government doesn't have any meaningful ongoing monitoring of small business credit, a topic I have an editorial on in the forthcoming American Statistical Association magazine for February 2011. NFIB's current report is notable on many topics but I wanted to highlight a few that might be lost in their importance.
- Forty-eight percent of small businesses attempted to borrow funds in 2010 while 3 percent of small business reported attempting to raise equity capital.
Measuring attempts to get equity investments is very difficult and indeed we worked with NFIB on this question in their current survey. So, here, I think it's important to recognized the sheer magnitude of difference between those who seek debt rather than equity in a given year but also to realize that this 3 percent estimate is very imperfect. In my own opinion, equity investment questions are particularly open to differential reporting when asked in the very aggregate rather than by very specific categories/relationships.
- "Almost one-quarter (24%) of small employers currently use credit cards and no other bank credit source. The overwhelming majority of this group does not appear interested in obtaining more credit."
The U.S. seems to be uniquely placed among countries in the proportion of small businesses using mainly credit cards for financing. I am not surprised by this statistics but I thought their second conclusion that for a very specific group of business owners, credit cards are all that is needed and they are not seeking addition financing.
- The percentage of small employers applying for credit fell from 55 percent in 2009 to 48 percent in 2010. The percentage approved for credit rose somewhat, leaving about the same number accessing credit in 2010 as accessed it in 2009.
This is why these types of questions are important in a time series. Even though the same number of businesses appeared to get credit there was a large shift in those applying.
- If an application for a line or a loan is rejected, it pays small business owners to try at a second or third institution. While the success rate declines with each successive institution approached, approvals appear high enough at fall-back institutions to warrant the effort. Beyond attempts at three institutions, success appears rare. Cards are different. Ninety-five (95) percent of apply- cants got one on the first attempt or did not get one at all.
This last point was interesting I thought particularly for small business owners. I don't know of an other place that gathers information quite like this.
Original Post 6/10/2009
Today, Kauffman is hosting a conference in New York discussing "Financing the Entrepreneurial Recovery." Although I am not attending, I thought it would be helpful to highlight the topic of finance and survey questions and some example survey questions which are being used by the National Federation of Independent Businesses (NFIB) to track small business financial conditions. Let us start with an extract from June 2009 Small Business Economic Trends on the credit markets:
Overall, loan demand is down due to widespread postponement of investment in inventories and historically low plans for capital spending. Cash conservation is a top priority in uncertain times. In addition, the credit worthiness of many potential borrowers has deteriorated in the recession, leading to more difficult terms and higher loan rejection rates (even with no change in lending standards). Twenty-eight (28) percent reported all their borrowing needs met (down two points) compared to nine percent who reported problems obtaining desired financing (up one point; not seasonally adjusted). The net percent reporting all borrowing needs satisfied fell 3 points to 19 percent. The percent of owners reporting loans harder to get rose to 16 percent of all firms, the highest reading since the 1980-82 recession period. So, it appears that as the recession drags on, financing becomes more difficult to arrange. But only 5 percent of the owners reported “finance” as their #1 business problem, up a point from April, but statistically unchanged for years. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted net negative 15 percent (more owners expect that it will be “harder” to arrange financing), 3 points worse than the April reading.
While the actual results here are very interesting and nuanced, let's turn to the questions used to gather this information. I am very thankful to Denny Dennis at NFIB who was nice enough to pull these questions for me for some research we are doing for an upcoming OECD-Kauffman workshop.
- 18. If you borrow money regularly (at least once every three months) as part of your business activity, how does the rate of interest payable on your most recent loan compare with that paid three months ago? 1. Much higher 2. Higher 3. Same 4. Much lower 5. Lower 7. Inapplicable, do not borrow regularly
- 18a. Are these loans easier or harder to get than they were three months ago? 1. Easier 2. Same 3. Harder 4. Don't know
- 18b. Do you expect to find it easier or harder to obtain your required financing during the next three months? 1. Easier 2. Same 3. Harder 4. Don't know
I like this set of questions but did want to point out that there are only a few small businesses which regularly enough borrow money to answer this question. I looked quickly at a similar question we asked of the Kauffman Firm Survey population (new businesses in 2004) and found only about 12 percent reported applying for new or renewed loans or lines of credit in calendar year 2007. I don't see in the report the percentage of all small businesses which actually applied in the last three months but have to imagine it is biased towards the bigger firms in the sample.
- 19. If you borrowed within the last three months for business purposes and the loan maturity was 1 year or less, what interest rate did you pay? __________ % or Prime + ___________
This question appears to show a real drop in interest rates paid relative to previous years which would seem to make sense. The wording to this question would seem to capture a larger share of firms.
- 20. During the last 3 months was your firm able to satisfy its borrowing needs? 1. Yes 2. No 3. Did not want to borrow
We asked a similar question in the Kauffman Firm Survey this year but worded differently, "During calendar year 2007, was there any time when [NAME BUSINESS] needed credit, but did not apply because you or others associated with [NAME BUSINESS] thought the application would be denied?" The two questions actually look at slightly different things, satisfaction of borrowing needs vs. needing credit but not applying. It'd be interesting to understand how firms interpretted both questions. On a quick read, NFIB's question seems a broader and worded in a way which I suspect respondent firms would respond better.
- 25. Compared to three months ago: c. Is trade credit, that supplier financing of purchases: 1. Easier to get 2. Harder to get 3. No change 4. Never use trade credit
I don't know much about trade credit but have heard this reported in Europe as a real issue of concern.
- 3. What is the single most important problem facing your business today? (Please circle only ONE of the following.) 4. Financing & interest rates
Intereestingly, this question peaked in mid-2008 and now remains quite low in comparison to other options (namely sales). Their response categories for this set of questions appears fairly complete and has shown some huge movements in the last year or two.
- 7. Were your net earnings or "income" (after taxes) from your business during the last calendar quarter higher, lower or about the same as they were for the quarter before?
- 7a. If higher or lower, what is the most important reason? (Circle only ONE.) 6. Financing costs
Wow. This is such a diverse array of questions with seemingly something for everyone. Unfortunately, NFIB doesn't go back to the same firms over time so we can only get these index type of questions. It'd be great for research purposes if they were able to do more of a longitudinal sample if only for a year.
11/18/2010 6:21:52 AM By
The OECD has a new statistical brief
out on entrepreneurship that focuses heavily on timely indicators of entrepreneurial activity. While these new indicators are not fully comparable across countries, the OECD focuses on the within country changes that have occurred recently.
Number of New Enterprises, 2006=100
The report has many other things from the OECD's core indicators which now have several years of time series data, but most of the interest will fall on the timely data. This downturn seems to have affected negatively most employer business entries in different countries. Because of the tightening of credit markets associated with the recent recessions, this isn't entirely surprising but is significant because this and the World Bank's recent data
are the most concrete measures of new, larger business entries across countries. Neither report looks at self-employment. I know that Legatum also has a new Prosperity Index
out but I haven't been able to review it yet.
I don't think the OECD has it's new country-level data posted on its website yet, but academics interested in that data should watch as it should be updated at any time. A more detailed publication with the data will follow in the spring 2011.
10/7/2010 9:00:00 AM By
A couple of weeks ago I was in Paris for a great meeting at HEC on University Entrepreneurship organized by Thomas Astebro
. That left me with time for a morning status meeting with Mariarosa Lunati who is currently heading up the Organisation for Economic Co-operation and Development's (OECD) Entrepreneurship Indicators Project (EIP). EIP is a program that Kauffman helped to launch more than five years ago
but which has only in recent years started to produce statistics
that are harmonized across countries on important topics such as the number of high-growth companies, gazelles, and business births/deaths.
The OECD continues to push to get more countries into the series. Through their partnership with Eurostat, the data collection and production of the harmonized statistics has become mandatory within the European Union meaning that within two years all members of the European Union that have the technical capability to produce the EIP statistics will do so annually. While the U.K. might produce statistics this year, that will bring countries such as Germany into the fold. Many non-OECD countries are also now producing the statistics – namely Brazil – with Australia hopefully coming on line this year and Japan in 2012.
In November, EIP will produce two statistical briefs. One of the briefs is sure to be on timely indicators of entrepreneurship across countries while the other topic is still in discussion. These two pieces will be distributed widely and bring some focus to the topic of entrepreneurship before and during Global Entrepreneurship Week. At that same time, the OECD expects to post on its website updated Excel files of country statistics gathered. A longer, more in-depth report will be released in the spring of 2011. In this report, the OECD also expects to discuss hot topics in entrepreneurship measurement including green entrepreneurship, women’s entrepreneurship, and migrant entrepreneurship.
By all indications the EIP is attempting to develop a core set of indicators which are on their way to becoming good time series, as well as to remain relevant in discussing topical issues that can contribute to other OECD programs or identified needs. In this regard, I tip my hat to Mariarosa for the great work she is doing. It’s very exciting to see so many positive developments from this program. With the increasing number of years and countries available, I think the next few years should see much wider analysis of the data within the academic community.
Read the OECD's full summary report
of recent activities.
10/7/2010 5:47:55 AM By
3/10/2010 3:00:00 PM By
Intrapreneurship, or the process of an individual (or team) starting a business (or business line) for an existing employer, is a concept not often measured within existing entrepreneurship metrics. This makes sense since it is more difficult for government statisticians to capture intra-firm dynamics in a meaningful way, industrial organization scholars are more focused on the behavior of the firm (not the entrepreneurs running them or employees of), and entrepreneurship scholars, for the large part, are focused on owner-operator firms with little systematic tracking of other key employee actions.
All of this makes noteworthy a recent report out from the Global Entrepreneurship Monitor team of scholars looking at the topic of intrapreneurship. Intrapreneurship is a concept that GEM has measured for some time in their screener at the national level but this new effort to conceptualize and inquire at the household level in Brazil, Chile, Ecuador, Iran, Republic of Korea, Latvia, the Netherlands, Norway, Peru, Spain, and Uruguay stands out for going into greater depth than previous work. Specifically, the scholars have screened for intrapreneurship using the following logic process.
If each implementing national team has implemented these concepts with strict adherence to protocol and is working with a quality survey vendor, then I think this was a really helpful exercise. First, the questions and logic are simple and straight forward. Second, capturing intrapreneurship should be a strength of household survey frames, which GEM uses. And, lastly, the scholars attempt to differentiate across different levels of intrapreneurship, although there are still broader conceptions of intrapreneurship that have been employed by others.
The authors come to the conclusion that "on average, less than 5 percent of employees are intrapreneurs, and that in most countries its incidence in the adult population is significantly lower than that of early-stage entrepreneurial activity," but probably more importantly to me is their finding that "the prevalence of intrapreneurship is about twice as high in high income countries as in low income countries." This makes a lot of sense since higher-income countries tend to have larger business organizations and thus the likelihood that a working age individual is employed at large business organization increases as countries develop. But on a related topic, I am puzzled by their finding that the prevalence of intrapreneurs increases with the size of the business.
If this is an unweighted measure, as I think is the case, then I worry this will lead to the conclusion that employees at smaller companies are less "intrapreneurial" but in fact, I suspect that if you weighted this so that it was on a per employee basis then the resulting outcome would be much more balanced.
Additionally, I wanted to point out the similarities of some concepts being measured here and those which are measured in other survey frameworks looking at innovation. Specifically, this survey protocol and the Oslo Manual
, which the Organisation for Economic Co-operation and Development (OECD) uses to measure innovation at the firm level, both appear to look at whether the new business activity involves a new product or service. There is a lot of potential overlap in concepts between entrepreneurship and innovation so this isn't surprising but should be noted.
Read the full report, Intrapreneurship - an international study
1/4/2010 4:00:00 PM By
Published every two years, the OECD Science, Technology and Industry (STI) Scoreboard
brings together internationally comparable indicators in the area. The 2009 edition was recently published. Read the English language summary
. One bullet point of likely interest:
- Historical data show that research and development (R&D) and venture capital are among the first expenditures to be cut during recessions in OECD countries. Preliminary data confirm this finding for the first half of 2009.
11/26/2009 9:00:00 AM By
The 2008 U.S. Global Entrepreneurship Monitor (GEM) report
was released this week from Babson and Baruch Colleges. Showing significantly different trends from the Bureau of Labor Statistics data
which was included for the U.S. in the report from Organisation for Economic Co-operation and Development (OECD)
which I highlighted last week, GEM found increasing trends in "total entrepreneurial activity" in 2008.
For those of you not familiar with GEM, it is collected through a household survey in participating countries on activities related to nascent entrepreneurship - people in the process of starting a business - and people running young businesses. In that sense, GEM is probably closest in measurement concepts to the Kauffman Index of Entrepreneurial Activity
(KIEA). GEM has the advantage of explicitly asking about activities related to nascent entrepreneurship while the KIEA takes advantage of a large-scale government survey to look at transitions from being employed by someone else to being self-employed or a business owner. And while GEM reports to have a large enough sample size to disaggregate different types of growth trajectories, I don't believe it is really possible with a sample size of 2,000 for the whole United States. Perhaps if they had a sample size which was twice its current size.
It used to be that GEM was one of the first indicators to the hit the presses, making it of particular interest to the policy community since official statistics have historically been laggards. But that is no longer the case. Indeed, besides the Kauffman Index of Entrepreneurial Activity and the OECD reports, I know that the Census Bureau is getting very close to releasing its updated Business Dynamics Series
through 2008 and the NETS database
has 2008 data out (I'll be posting on that more in the next couple of days). If GEM loses its timeliness factor and there continue to be concerns on the squishiness of the data it collects, then I fear the last legs of this effort might come off. It is an effort with many merits, which is why we were involved as a funder for many years - don't get me wrong. Being able to buy time on omnibus surveys can be very economical and as such I still know many researchers who utilize this function.
11/19/2009 7:53:50 AM By
The Organisation for Economic Co-operation and Development (OECD) Entrepreneurship Indicators Project has a new report out of entrepreneurship indicators
which is most notable for the timely data they have collected on firm (or in some cases establishment) entry and exit
. It is clear that that entry of employer firms (those not just entering self-employment) has been negatively affected in the current downturn while business exits have increased. We'll be highlighting some of our thoughts on this report in various locations in the coming week and I'll be sure to post those. Also notable additions to country coverage (welcome Brazil, in particular!) and an increase in data gathered from third parties on inputs into entrepreneurship.